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Marc Faber does not mince words. He believes that
the money printing policies of the Federal Reserve and its sister central
banks around the globe have put the world's currencies on an inexorable,
accelerating, inflationary down slope.
The dangers of money printing are many, in his eyes.
But in particular, he worries about the unintended consequences it subjects
the populace to. Beyond currency devaluation, it creates malinvestment
that leads to asset bubbles that wreak havoc when they burst. And even more nefarious,
money printing disproportionately punishes the lower classes, resulting in
volatile social and political tensions.
It's no surprise, then, that he's feeling
particularly defensive these days. While he generally advises those looking
to protect their purchasing power to invest capital in precious metals and
the equity markets (the rationale being that inflation should hurt equity
prices less than bond prices), he warns that equities appear
overbought at this time.
On Inflation
First of all, I do not
believe that the central banks around the world will ever, and I repeat ever,
reduce their balance sheets. They’ve gone the path of
money printing, and once you choose that path you’re in it and you have
to print more money.
If you start to print, it has the
biggest impact. Then you print more -- it has a lesser impact, unless you
increase the rate of money printing very significantly. And, the third
money-printing has even less impact. And the problem is like the Fed: They
printed money because they wanted to lift the housing market, but the housing
market is the only asset that didn’t go up substantially.
In general, I think that the
purchasing power of money has diminished very significantly over the last
ten, twenty, thirty years, and will continue to do so. So being in cash and
government bonds is not a protection against this depreciation in the value
of money.
On His Love for Central Bankers
Basically the US had a significant
increase in the average household income in real terms from the late 1940s to
essentially the mid-1960s. And then inflation began to bite, and real income
growth slowed down. Then came the 1980s, and in order not to disappoint the
household-income recipients, you essentially printed money and had a huge
debt expansion.
So if you have an economic system and
you suddenly grow your debt at a very high rate, it's like an injection of a
stimulant of steroids. So the economy grew at a relatively fast pace, but
built on additional debt. And this obviously cannot go on forever, and when it
comes to an end, you have a problem. But the Fed had
never paid any attention.
The Fed is about the worst economic
forecaster you can imagine. They are academics. They never go to a local pub. They never go
shopping -- or they lie. But basically they are a bunch of people who never
worked a single day in their lives. They’re not businessmen that have
to balance the books, earn some money by selling goods, and pay the
expenditures. They get paid by the government. And so these people have no
clue about the economy.
And, so what happens is they never
paid any attention to excessive credit growth -- and let me remind you,
between 2000 and 2007, credit growth was five times the growth of the economy
in nominal terms. In other words, in order to create one dollar of GDP, you
had to borrow another five dollars from the credit market. Now this came to
an end in 2008.
Now the Fed never having paid any
attention to credit growth, they realized if we have a credit-addicted
economy and credit growth slows down, we have to print money. So that’s
what they did. But believe me, it doesn’t take
a rocket scientist to see that if you print money you don’t create
prosperity. Otherwise, every country would be unbelievably
rich, because every country would print money and be happy thereafter.
On the Unintended Consequences of Money Printing
In the short term, it has been working
to some extent, in the sense that equity prices are up and interest rates are
down. And, so companies can issue bonds at extremely low rates. But every
money-printing exercise in the world leads to unintended consequences at a
later point. And this is the important issue to remember. We don’t
know yet for sure what the unintended consequences are.
We know one unintended consequence,
and this is that the middle class and the lower classes of society, say 50%
of the US, has rather been hurt by the increase in the quantity of money in
the sense that commodity prices in particular food and energy have gone up
very substantially. And, since below 50% of income recipients in the US spend
a lot, a much larger portion of their income on food and energy than, say,
the 10% richest people in America and highest income earners, they have been
hurt by monetary policy. In addition, the lower income groups, if they have
savings, traditionally they keep them in safe deposits and in cash because
they don’t have much money to invest in the first place. So the
increase in the value of the S&P hasn’t helped them, but it helped
the 5% or 10% or 1% of the population that owns equities. So it's created a wider wealth
inequality, and that is a negative from a society point of
view.
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